Training the next generation of insurance agents: Who's on the hook?

By Jeff Reed

Kestler Financial Group

More and more, insurance licensed individuals are "in the business" but do not have the foundational training that many of us acquired early in our careers.

This article talks about one of the many discussions that went on at our annual conference, and also touches on an issue that a producer I know is currently dealing with.

The discussion at the conference was focused on the breakdown of the traditional training model and how it has coincided with the shift away from traditional, career agency production to independent distribution. More and more, insurance licensed individuals are "in the business" but do not have the foundational training that many of us acquired early in our careers. While this is a big enough issue on its own, it does have some potentially larger ramifications, and this is where the issue of the above-mentioned producer comes into play.

What really started me thinking about all of this was a comment he made about "feeling really isolated" by what he perceived to be a lack of guidance from the carrier regarding notice and consent requirements, as well as the IRS filing requirements for employer-owned insurance contracts. As I helped him dig into the relevant code sections from the Department of Labor and the IRS, it became apparent that his isolation was probably not unique. In fact, I am willing to wager that there are more than a few producers reading this who have the same issue lurking within their book of business.

So, let's talk specifics. When an employer owns a life insurance contract on an employee, the employee needs to provide written
consent to be insured. This consent is between the company and the employee and must meet very specific requirements. Some carriers include a consent form in their application package in these situations, while others have a brief disclaimer pointing the insured and policy owner back to their own advisors for guidance on the issue. As good a start as the inclusion of the consent form is, it does not give any help regarding the IRS filing, which needs to be done by the employer annually at tax time.

The downside of not meeting these two requirements is the possibility of a taxable death benefit; not good for anyone.

So, let's examine the case in question (and the specifics are not really relevant to the rest of the discussion), which
centers on the article's title: "Who's on the hook?" In the case of the producer, one question is, who is ultimately responsible for compliance with these rules? While that is important, I think the larger issue is how we, as an industry, manage issues like this in the light of my opening comments. Who is willing and able to take on the training of the next generation of agents, or current ones for that matter? It's a big question, and one that is obviously not going to be answered here.

What we can do here is commit to providing more actionable intelligence. What do I mean? While commentary like today's is intended to be thought provoking, how about I provide some links to the applicable code sections? You got it. Here is a link to Form 8925, which needs to filed with the IRS each year, along with a link to the most recent IRS notice on the topic from back in 2009.

Now go audit those files to make sure you and your clients are in compliance.